Oil Shale Rumblings ..
By Timothy Gardner
NEW YORK, March 22 (Reuters) - Big Oil could soon begin trying to melt petroleum on U.S. lands from oil shale, a resource the government says has huge potential but was so pricey to produce in the 1980s that companies walked away from it.
Chevron Corp. (CVX.N: Quote, Profile, Research) and other companies are completing environmental impact statements on applications for eight research and development leases to produce oil from shale in Colorado and Utah.
In addition, last year's U.S. Energy Policy Act requires the government to set up a commercialized oil shale leasing program by August 2007.
U.S. oil production has fallen nearly 50 percent from 1970 to 2005, domestic and foreign demand is rising, and crude futures so far this year are average well above last year's average $57 per barrel.
That is spurring oil company interest in alternative sources of crude despite concerns by local groups that oil shale production consumes large amounts of water and power, both of which are scarce in the West.
"We're not disputing the fact that it is power intensive, but you get a transportation fuel which is needed in our economy," said Jill Davis, a Shell spokeswoman. "So for what you give up you get a lot out."
Companies say the challenges mean they are years away from deciding whether they will produce the oil commercially.
But the oil beckons.
More than 1 trillion barrels of petroleum lie underground in shale deposits in the U.S. West, mostly Colorado, according to the Department of Energy. The amount, as a point of comparison, is several times more oil than Saudi Arabia has in proved reserves.
The U.S. Bureau of Land Management may grant some of the research and development leases as early as July. Ten years later it could convert them from research leases of 160 acres to commercial leases of 5,000 acres.
Oil shale's history gives both the government and companies pause. It was hot after the 1979 Iranian Revolution had boosted crude prices higher than today's, when adjusted for inflation.
But then prices and price outlooks fell on rising non-OPEC production and drooping demand.
On May 2, 1982, known in Colorado as "Black Sunday," Exxon closed its $5 billion Colony shale project in Colorado, laying off 2,200 workers.
"Twenty years later all parties realize the need to develop efficient and environmentally sound oil shale technologies at a measured pace so that volatility doesn't happen again," Exxon spokesman Robert Davis said in an e-mail.
This time, said a spokeswoman for the Bureau of Land Management, which will grant the research leases, the government is taking a gradual approach. The BLM says companies would have to prove that the production is economically viable at lower oil prices than today's.
"If something was drastically overlooked, it wouldn't have the widespread impact that things did back in the 1970s and 1980s when it didn't work out the first time," said BLM's Heather Feeney.
But local groups say the August 2007 commercialization program deadline is rushed.
"It's an accelerated process; we're worried that they will go too fast and they won't look hard enough (for potential environmental impacts)," said Bob Randall, attorney at Western Resources Advocates.
Oil shale is basically crude that would need millions of years of natural heat and pressure to mature into something from which fuel can be made.
Some of the oil companies with research lease applications plan to simulate the natural heat process by cooking shale with underground heating coils at temperatures up to 700 degrees Fahrenheit for up to four years.
Shell, which has three of the eight R&D lease applications, said shale processing can take one unit of energy to take three units of energy out of the ground, far more than from conventional oil fields.
In addition to the heaters, ice walls may need to be created to prevent melting oil from polluting groundwater.
The "in situ" technique would cut down on rubble and destruction left over from deep mining of shale. But oil futures have to be at least $25 a barrel for companies to profit from shale.
And environmentalists worry that the extra power demand would require a new coal or natural gas power plant to be built as well as access roads.
"You're burning a fuel to create a fuel," said Randall. "It doesn't seem very efficient to use what is a valuable energy source to turn rock into oil."
Local groups also say the industry would transform the economy of western Colorado, which is currently mostly small gear stores for hunting deer.
Shell's Davis said the company is trying to drive down the profit level price of shale and if it decides to produce it, a variety of power sources could be used.
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